The portfolio has shown resilience
Octopus Apollo VCT is a well-diversified portfolio of smaller UK companies. The core focus over the past few years has been on making growth capital investments into commercialised ‘B2B’ technology businesses i.e., they have already started selling their product or service to other businesses, usually with contracted recurring revenues and a well-diversified customer base.
The coronavirus pandemic has had a much lower impact on these types of businesses, in comparison to the widespread issues felt my many companies that the media may report on. Some of these technology companies have in fact benefited from an acceleration in the adoption rates of software solutions which continue to grow in prevalence as businesses adapt to more remote and decentralised ways of working. An example of this is Veeqo, a multi-channel sales and inventory management system, that benefited from the increase in ecommerce this year and Natterbox that benefitted from businesses’ need to quickly enable their call staff to work remotely. If you wish to find out more about these companies you can read about them here
Furthermore, Apollo VCT has very low exposure to travel, hospitality, retail or leisure (less than 12% as at 31 July 2020), which are sectors that have been significantly impacted over the past twelve months by the coronavirus pandemic.
Performance of the VCT
Apollo continues to perform strongly due to the focus on B2B recurring revenue business models and the defensive structuring of each investment, meaning we typically have a portion of our capital invested into companies in a ‘priority ranking’ position should the company be sold. Following the immediate outbreak of the coronavirus pandemic last Spring, we assessed the possible impact on each individual business within the portfolio and adjusted the affected companies where necessary. This resulted in a c.6% reduction in the Net Asset Value (“NAV”) at the time.
We have since seen the portfolio recover well, with the growth from the stronger performing assets helping offset any issues with affected companies. In our interim accounts we reported positive performance to 31st July, and following a further uplift in December and a full year (unaudited) performance of +12.7% total return. Please see below for five-year performance of Apollo. We believe that against the backdrop of the economic impact of the coronavirus pandemic, and relative to other generalist VCT’s in the sector, that this is a very positive outcome for Apollo shareholders.
Since January we have been able to announce another valuation uplift to reflect a number of key transactions in the portfolio. We remain confident of delivering strong performance in future periods, although it is important to remember that past performance is not a reliable indicator of future results.
Deal flow remains strong
Overall deal flow remains strong and we have seen a material increase in the number of opportunities over the past six months, especially within our target market of B2B technology. We have recently completed three new investments over the past few months (details of each below), with a healthy pipeline of additional opportunities to be converted in the first half of 2021.
The first of the new investments was to provide growth funding to digital talent assessment software business Sova Assessment, read about it here.
We also provided growth funding to Ryte, a website quality management software business, read about it here.
And most recently we have invested in Perfect Ward, a quality inspection application used within the NHS, care homes, and community and social care sites.
The VCT has seen strong demand and has paid dividends
As noted above, investment performance has been strong. For five-year performance please see below. In relation to the fund itself, investor support has remained very strong, and we have announced our intention to extend the fundraise further, raising up to £75million, subject to approvals. This has provided Apollo with healthy cash reserves to fund new investment opportunities, as well as supporting the growth of the existing portfolio with follow-on investments.
We recently paid the interim dividend and share buybacks have continued uninterrupted through the COVID-affected period. Please remember past performance is not a reliable indicator of future results.
We’re optimistic for 2021
Our focus on B2B technology businesses has proven to be a highly relevant investment strategy, with further growth expected in this sector due to the increasing need for organisations of all sizes to adapt and enhance their IT infrastructure to successfully operate in a more remote centric working environment.
With strong recent and anticipated investment performance, healthy cash reserves and an exciting investment pipeline, we maintain a very positive outlook for Apollo.
Five-year discrete performance
| Year to 31 January | |||||
|---|---|---|---|---|---|
| 2017 | 2018 | 2019 | 2020 | 2021 (unaudited) | |
| Annual total return | 2.9% | 2.2% | -0.8% | 3.4% | 12.7% |
| Annual dividend yield | 5.9% | 26.1% | 22.15% | 6.1% | 5.0% |
| Total value (p) | 117.2 | 118.6 | 118.2 | 119.8 | 125.6 |
Past performance is not a reliable indicator of future results. Dividends are not guaranteed.
The performance information above shows the total return of Octopus Apollo VCT for the last five years to 31 January 2021.
The annual total return for Octopus Apollo VCT is calculated from the movement in net asset value (NAV) over the period to period end, with any dividends paid over the period then added back. The revised figure is divided by the NAV at the start of the period to get the annual total return. Performance shown is net of all ongoing fees and costs.
The annual dividend yield is calculated by dividing the dividends paid during the period by the NAV at the start of the period. Please note, the NAV per share may be higher than the share price, which is the price you may get for the shares on the secondary market.
Total value shows the sum of the NAV per share in pence for the last five years to 31 January and cumulative dividends per share in pence since inception for the last five years to 31 January.
Reminder of the key risks
The value of investments discussed, and any income from them, can fall as well as rise. Investors may not get back the full amount they invest.
Tax treatment depends on an investor’s personal circumstances and may change in the future.
Tax reliefs depend on the VCT maintaining it’s VCT-qualifying status.
VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
This advertisement is not a prospectus. Investors should only subscribe for shares based on information in the prospectus and Key Information Document (KID), which can be obtained from octopusinvestments.com.